How Pursuit of Profits Kills Innovation – Forbes

This is possible the most important thing to understand for any business manager looking to create a profit in the coming decade.

You’re probably measuring the wrong thing and it kills your profit.

Some teasers:
Christensen recalls an interesting talk he had with the Morris Chang the chairman and founder of one of the firms, TSMC [TSM], who said:

“You Americans measure profitability by a ratio. There’s a problem with that. No banks accept deposits denominated in ratios. The way we measure profitability is in ‘tons of money’. You use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, then that is causing you to economize on something that is abundant.”

In this new world, the bottom of line of business isn’t profits but rather customer delight, i.e. the provision of a continuous stream of additional value to customers and delivering it sooner. As a result of epochal shift of power in the marketplace from seller to buyer, the customer is now in charge.

For managers trained in traditional business school thinking, the idea that pursuit of profit is the problem, rather than the solution to the economy’s problems, may come as a shock. For business school professors who have spent their lives teaching the focus on profits and the use of IRR and RONA to measure profits, the coming change may be even more disturbing.

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